DCIT, Circle-1(2), Bhubaneswar, Bhubaneswar V. M/s. Serajuddin & Co. Pvt. Ltd, Bhubaneswar

ITSSA 40/CTK/2013

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1415 (ITAT-CUTTACK)
• Duration Of Justice: 9 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 09-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL KUMAR MISHRA
• Keywords: Depreciation; Document seized; Principle of natural justice; Additional evidence; Documents seized; TDS
• Section: 132; 153A; 44AB; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BEFORE AND ARUN KHODPIA, ACCOUNTANT MEMBER M/s. Serajuddin & Co. floor ‘C’ Wing, Fortune Tower, Chandrasekharpur, Bhubaneswar. PAN/GIR No. (Appellant ACIT, Circle -1(2), Aayakar Bhavan, Rajaswa Vihar, Bhubaneswar. (Appellant Per Bench These are cross appeals filed by the assessee and revenue against the orders of the ld CIT(A) No.0241/10-11 for the assessment year 2008 11 for the assessment year 2009 IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI GEORGE MATHAN, JUDICIAL AND ARUN KHODPIA, ACCOUNTANT MEMBER IT(ss)A Nos.30 &31/CTK/20 Assessment Years : 2008-09 & 2009 M/s. Serajuddin & Co.P.Ltd, 7 th floor ‘C’ Wing, Fortune Tower, Chandrasekharpur, Bhubaneswar. Vs. ACIT, Circle Aayakar Bhavan, Rajaswa Vihar, Bhubaneswar. PAN/GIR No.AAICS 3545 F (Appellant) .. ( Respondent IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009 1(2), Aayakar Bhavan, Rajaswa Vihar, Bhubaneswar. Vs. M/s. Serajuddin & Co. floor ‘C’ Wing, Fortune Tower, Chandrasekharpur, Bhubaneswar PAN/GIR No.AAICS 3545 F (Appellant) .. ( Respondent Assessee by : Shri Sunil Kumar Mishra Revenue by : Shri M.K.Gautam, CIT DR Date of Hearing : 10 /10 Date of Pronouncement : 10/10 O R D E R These are cross appeals filed by the assessee and revenue against the orders of the ld CIT(A)-1, Bhubaneswar all dated 25.2.2013 11 for the assessment year 2008-09 and in Appeal No.0242/10 11 for the assessment year 2009-10. Page1 | 18 IN THE INCOME TAX APPELLATE TRIBUNAL, JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER /CTK/2013 09 & 2009-10 ACIT, Circle -1(2), Aayakar Bhavan, Rajaswa Vihar, Bhubaneswar. Respondent) ss)A Nos.41 &42/CTK/2013 09 & 2009-10 M/s. Serajuddin & Co.P.Ltd, 7 th floor ‘C’ Wing, Fortune Tower, Chandrasekharpur, Bhubaneswar PAN/GIR No.AAICS 3545 F Respondent) Sunil Kumar Mishra , CIT DR 10/2022 10/2022 These are cross appeals filed by the assessee and revenue against all dated 25.2.2013 in Appeal 09 and in Appeal No.0242/10- IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page2 | 18 2. Shri M.K.Gautam, ld CIT DR appeared for the revenue and Shri Sunil Kumar Mishra, ld AR appeared for the assessee. 3. First, we take up the appeals for the assessment year 2008-09. 4. In assessee’s appeal, the assessee has raised the following grounds of appeal: “On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in failing to consider that the assessment order passed U/S.143(3)/153A/144 of the Income Tax Act, 1961 (herein after referred as ' the Act') is bad in law and liable to be quashed inasmuch as that:- 1. no warrant of authorization u/s 132 of the Act was issued in the case of the appellant for which the assessment order passed u/s 153A of the Act is beyond jurisdiction and search action conducted and all other consequential proceedings are illegal and without jurisdiction; 2. the warrant of authorization u/s. 132 of the Act issued by Jt. Director of Income tax is beyond jurisdiction and search action conducted and all other consequential proceedings are illegal and without jurisdiction; 3. no prior approval was taken in accordance with the provisions of Section 153D of the Act vis-a-vis CBDT instruction. 4. no opportunity was given for cross-examination of various persons whose statements were relied upon for making various disallowances thereby violating the principles of natural justice. 5. the assessment order was passed without providing the print out from seized and sealed CDs , Hard disks and the books of account illegally removed from the premises of its accountant thereby violating the principle of natural justice. 6. the assessment order was passed simultaneously under section 143(3) and 144 of the Act. IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page3 | 18 7. the assessment order was passed without serving notice under section 153A(1)(a) of the Act. The Ld Commissioner of Income Tax (Appeals) erred:- 8. making disallowance on estimation basis @10% of the administrative expenses recorded in the books of account and claimed in the audited profit and loss account without appreciating the fact that no such estimated disallowance can be made merely on assumption and presumption and hence, the disallowance made out of administrative expenses on estimation basis @10% amounting to Rs. 15,84,251/- is without any justification and liable to be deleted. 9. in failing to appreciate that not a single defect or discrepancy is pointed out in the claim made of administrative expenses are incurred not for business or otherwise and hence, having not pointed out any such defects/discrepancy, the ad hoc disallowance out of administrative expenses is unjustified and liable to be deleted. 10.in making disallowance on estimation basis @20% of the commission charges recorded in the books of account and claimed in the audited profit and loss account without appreciating the fact that no such estimated disallowance can be made merely on assumption and presumption basis particularly so when the amount was paid through cheque after deducting income tax at source and hence, the disallowance made out of commission charges on estimation basis @20% amounting to Rs.3,16,419/- is without any justification and liable to be deleted. 11. in failing to appreciate that not a single defect or discrepancy is pointed out in the claim made of commission charges are incurred not for business or otherwise and hence, having not pointed out any such defects/discrepancy, the ad hoc disallowance out of commission charges is unjustified and liable to be deleted. 12. in failing to appreciate that the appellant has duly paid the commission charges through account payee cheques and has deducted TDS on the same and also paid service tax as per the invoices and the disallowance thus made on estimation basis is unjustified and liable to be deleted.” 5. In revenue’s appeal, the revenue has raised the following grounds: IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page4 | 18 “1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in directing to accept the audited profit and loss account of the assessee without proper verification of the same. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in directing to accept the sales figure shown by the assessee. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in directing to accept the expenses of the assessee when the same are not verified. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in directing to allow depreciation to the assessee when the same has not been verified. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in accepting the contentions of the assessee and not accepting the findings of the AO in violation of Rule 46A of the IT Rules.” 6. At the time of hearing, ld AR of the assessee submitted that he does not wish to press Ground Nos.1 to 7 of assessee’s appeal and has endorsed in the file to that effect. Consequently, Ground Nos.1 to 7 of appeal of the assessee stand dismissed as not pressed. 7. It was submitted by ld CIT DR that there was a search on the premises of the assessee and for the relevant assessment year, neither the return was filed u/s.139(1) of the Act nor did the assessee file its return in response to notice u/s.153A of the Act. As there was non-cooperation from the side of the assessee, the Assessing Officer completed the assessment exparte. As certain evidences have been found in the course of search showing the turnover of the assessee, the Assessing Officer had written a letter to the Dy. Commissioner of Commercial Taxes, Barbil Circle, Barbil, IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page5 | 18 with a request to provide the details of sales made by the assessee during the year. The said Commercial Tax authorities provided the monthly details, which showed turnover of Rs.47,43,49,434/-. Similar details had also been called for regarding export sales from the Asst. Commissioner of Custom House, Paradeep. The Asst. Commissioner of Custom House, Paradeep had provided the details of export sales at Rs.61,59,92,274/-. It was the submission that the Assessing Officer consequently took the total turnover at Rs.70,03,32,624/- and recasted the profit and loss account and determined the net profit at Rs.21,06,92,130/-, which was brought to tax. It was the submission that the ld CIT(A) in the appellate proceedings took into consideration 44AB report filed by the assessee in violation of Rule 46A of I.T.Rules. It was the submission that the due date of filing of the audit report was 30.9.2008. However, the audit report was done only on 28.3.2011 much after the assessment order. The ld CIT(A) has not passed order giving any reason in writing as to under which clause of Rule 46A, he has admitted the audit report. 8. It was the submission that without properly admitting the additional evidence in the form of audit report, he sent the audit report for a remand to the Assessing Officer. The Assessing Officer on the ground that certain incomes had been offered in the remand report in excess of what has been considered in the assessment had submitted the remand report requesting that the additional income offered in the audit report was also liable to be IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page6 | 18 brought to tax over and above such income which has been assessed in the assessment order. It was the submission by ld CIT DR that the ld CIT(A) has accepted the turnover of the assessee at Rs.44,46,37,802/- as against the turnover of Rs.70,03,32,624/- determined by the AO on the basis of the confirmation given by the Asst .Commissioner of Custom House, Paradeep. It was the submission that this was wrong. It was the further submission that after admitting the additional evidence in the form of audit report, the ld CIT(A) in page 13 of his order mentions that the expenses as claimed in the audit report has remained unverified and made an estimated disallowance in respect of administrative expenses and commission charges under the head “ export expenses”. It was the submission that at the outset, the audit report should not have been admitted and the assessment having been done on the basis of information provided by the Asst. Commissioner, Custom House,,Paradeep, the assessment was liable to be upheld and the order of the ld CIT(A) reversed. 9. It was the further submission that in para 3.3 of the order, the ld CIT(A) has directed the Assessing Officer to accept the turnover as disclosed in the audit report without any reconciliation having been done or having been verified. It was the submission that the order of the ld CIT(A) is liable to be reversed. 10. In reply, ld AR placed before us, copies of the remand reports dated 23.11.2012 and Nil, which are extracted herein below: IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page7 | 18 IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page8 | 18 Dated Nil. Comments on the Audit Report u/s 44AB along with P&L A/c and Balance vis the Assessment Order dated 29.12.2010 In the case of M/s. Serajuddin and Co, (P) Ltd, for the A.Y, 2008- 09 IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page9 | 18 • Total income calculated In the assessment order as following: Profit from trading activities Rs.21,06,92,130/- Total: Rs.21,06,92,130/- Audit report is prepared on 28.3,2011, which is after though of the Search and seizure proceeding. Total sale disclosed by the assessee is Rs.44.46.37.802/- where as total sale in the assessment order is taken as Rs.70.03,32.624/- which is disclosed by the assessee in front of the Sales Tax Authority. Other income as disclosed in the audit report, not taken in the assessment order may be accepted. The value of purchase, opening stock and expenses taken as per the seized documents. Value of opening stock for assessment year 2008-09 is taken based on the closing stock for the assessment year 2007-08 which was determined based on seized document. Transportation charges (export), stevedoring charge and unloading expenses shown in the profit and loss a/c of the audit report are Rs.22.74 crore, Rs.0.58 crore and Rs, 1.13 crore which is lower than the value taken in the assessment order. The claim in these expenses in the audit report may be accepted. Closing stock in the audit report is Rs.5.67 crore higher than the closing stock In the assessment order of Rs.3.52 crore. The claim of the assessee may be accepted. The Auditor's Report u/s 44AB along with P&L A/c and Balance Sheet as submitted by the assessee can be accepted for the following reasons; i. In a way, the Audit Report is a vindication/proof of the inferences drawn by the AO on the issues mentioned above. ii. The income reported by the assessee therein (in the audit report) is part of the income assessed by the AO. iii. Additional income assessed by the AO over and above the reported income (in the audit report) is based on the materials/documents/pieces of evidence seized during the search operation. Such additional income is not recorded in the audited IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page10 | 18 books of account. The additions thus made and the enhanced income thus arrived at may be sustained.” 11. It was the submission that the Assessing Officer himself has requested that the audit report u/s.44AB alongwith profit and loss account and balance sheet as submitted by the assessee could be accepted in the remand report dated Nil. It was further submitted that in the remand report dated 23.11.2012, the reconciliation between the turnover as provided by the Asst. Commissioner, Custom House and the turnover as disclosed by the assessee in its audit report had been reconciled. It was the submission that the audit report could not be filed in the course of assessment as the same was not ready. It was the prayer that the order of the ld CIT(A) in respect of acceptance of the turnover as disclosed by the assessee in its audit report may be upheld. It was the further submission that the estimated disallowance made by the CIT(A) in respect of administrative expenses and the commission charges under the head “ export expenses” may be deleted insofar as no defects in the accounts had been pointed out. It was the submission that the assessee’s case was search case and in the absence of incriminating material, no disallowance of the expenses is liable to be made. It was the prayer that addition as made by the ld CIT(A) is liable to be deleted. 12. We have considered the rival submissions. Admittedly, the first issue that comes up for adjudication is in regard to admission of the additional IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page11 | 18 evidence in the form of 44AB report by the ld CIT(A). As rightly pointed out by ld CIT DR, the due date of filing the 44AB report was 30.9.2008 but the audit report has been obtained only on 23.3.2011 and the assessment order has been passed only on 28.12.2010. Clearly, the assessee was not in possession of the audit report when the assessment was done. True, ld CIT(A) has not given a speaking finding in regard to clause under which the additional evidence has been admitted under rule 46A. However, a perusal of the remand report by the AO shows that the AO has not raised any objection in respect of admission of the audit report. In fact, the AO in the report dated Nil has categorically mentioned that other income disclosed in the audit report not taken in the assessment order may be accepted. In respect of expenses representing the transportation charges, stevedoring charges and unloading charges shown in the profit and loss account in the audit report are lower than the value taken in the assessment order and consequently, the claim of expenses in the audit report could be accepted. The closing stock in the audit report is higher than the closing stock in the assessment and that could be accepted. In the end, the AO mentions that the additional income assessed by the AO over and above the reported income in the audit report is based on materials/documents/piece of evidence seized during the search operation. Such additional income is not recorded in the audited books of account and the additions thus made and the enhanced income arrived at may be sustained. When this is compared IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page12 | 18 with the assessment order, it is noticed that there is no additional income assessed in the assessment order on the basis of any materials/documents/piece of evidence seized during the search operation. The additional income is determined by recasting the profit and loss account on the basis of turnover informed by the Asst. Commissioner, Custom House. Rs. 70,03,32,624/- is arrived at by taking Rs.61,59,92,274/- as intimated by the Asst. Commissioner, Custom House in respect of export sale and an amount of Rs.8,43,40,350/- intimated by the Commercial Tax Authorities, Barbil. A perusal of the remand report dated 23.11.2012 shows that in para 3, the information provided by the Custom House, Paradeep and the details provided by the assessee was compared and it was found that the total export sales of FOB value for Serajuddin & Co Pvt Ltd.,. and Yajdani International Pvt Ltd., is same for the assessment year 2008-09. The difference is only due to short shipment and wrongly taken for the different assessment years. Then, the AO does the reconciliation and gives findings that the export sales value provided by the assessee is different from the FOB value and as per the assessee’s statement, realisation of sale is on the date of making invoices, when ship start from the Port. The exchange rate on that date decide the export sale value. As per the invoices and exchange rate, the export sale value for the assessment year 2008-09 for the assessee herein is Rs.36,01,28,151/-. To this, if we add the local sales as intimated by the Commercial Tax Authorities of IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page13 | 18 Rs.8,43,40,353/-, the turnover as disclosed by the assessee in 44 AB report at Rs.44,46,37,802/- is reached. Thus, clearly, the 44AB report as admitted by the ld CIT(A) and on which remand report has been called for from the AO had been examined by the AO and same has also found to be substantially correct. The AO having given a finding in the remand report that the auditor’s report u/s.44AB alongwith profit and loss account and balance sheet as submitted by the assessee may be accepted for the reasons mentioned therein, it no more lies in the mouth of the AO to raise a ground in the second appeal that there has been violation of the provisions of Rule 46A. The audit report having also been reconciled with the figures as arrived at by the AO on the basis of communication received from the Commercial Tax Authorities and the Asst. Commissioner, Custom House. we are of the view that the ld CIT(A) has only accepted the remand report of the AO when directing that the figures in the audit report is to be considered in place of figures adopted by the AO in the assessment order. Consequently, we are of the view that the findings of the ld CIT(A) are on right footing and does not call for any interference. 13. Coming to the issue of disallowance of the 10% of the administrative expenses and 20% of the commission charges, admittedly, neither the AO nor the ld CIT(A) has verified any of the expenses. We are live to the fact that clearly 14 years have lapsed from the relevant assessment year and restoring the issue to the file of the AO for examination may be futile. IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page14 | 18 This being so, in the interest of justice, we reduce the disallowance under the head administrative expenses from 10% to 5% and commission expenses from 20% to 10%. 14. In the result, appeal of the assessee is partly allowed and that of the revenue is dismissed. IT(ss) A Nos.31/CTK/2013 & IT(ss) A No.52/CTK/2013: Asst.Yr.2009-10 15. The facts for the assessment year 2009-10 are similar to the facts of the assessment year 2008-09. It was submitted by ld CIT DR that for the assessment year 2009-10, the Assessing Officer has estimated the income of the assessee by applying the net rate of 22%. It was submitted that the ld CIT(A) has directed that the audit report is to be considered. It was the submission that the ld CIT(A) further disallowed 10% out of administrative expenses and 20% of the commission expenses. It was the submission that the order of the ld CIT(A) is to be reversed and that of the AO restored. 16. Ld AR reiterated the submissions as made in the assessment year 2008-09. 17. We have considered the rival submissions. For the assessment year 2009-10, the remand report has been called for by the ld CIT(A), which are extracted herein-below: IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page15 | 18 ‘” Comment on the audit report u/s.44AB alongwith P&L and balance sheet vis-à-vis the assessment order dated 29.12.2010 in the case of M/s. Serajuddin and Co Pvt Ltd., for the A.Y. 2009-10. Total income calculated in the • Total income calculated In the assessment order as following: Net profit from the trading activities Total Sale Rs.56,02,71,242/- Net profit @ 22% Rs.12,32,59,673/- Total income Rs.12,32,59,673/- Audit report is prepared on 28.3,2011, which is after thought of the Search and seizure proceeding. Total sale disclosed in the audit report is Rs.36,57,53,056/- which is lower than the actual sale of Rs.56,02,71,242/- as disclosed by the assessee before Sales Tax Authority. Other income of Rs.9,75,244/- disclosed in the audit report was not taken in the assessment order. It may be accepted. Net profit in the assessment order is taken on estimate basis @ 22% of gross sale based on the assessment order of two similar companies doing same business (M/s. Aliza International Pvt Ltd. A.Y. 2008-09. M/s. YIPL A.Y. 2008—09) But the assessee has shown net loss in the audit report, which is not genuine. Net profit taken @ 22% based on the seized documents of similar companies is correct and should be upheld. The auditor’s report u/s.44AB alongwith P&L a/c and balance sheet as submitted by the assessee can be accepted for the following reasons: i. In a way, the Audit Report is a vindication/proof of the inferences drawn by the AO on the issues mentioned above. ii. The income reported by the assessee therein (in the audit report) is part of the income assessed by the AO. iii. Additional income assessed by the AO over and above the reported income (in the audit report) is based on the materials/documents/pieces of evidence seized during the search operation. Such additional income is not recorded in the audited IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page16 | 18 books of account. The additions thus made and the enhanced income thus arrived at may be sustained.” IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page17 | 18 IT(ss)A Nos.30 &31/CTK/2013 IT(ss)A Nos.41 &42/CTK/2013 Assessment Years : 2008-09 & 2009-10 Page18 | 18 18. We have already given our findings for the assessment year 2008-09 upholding the findings of the ld CIT(A) in accepting the audit report filed by the assessee. Our findings for the assessment year 2008-09 would apply for the assessment year 2009-10 also. Similarly, in respect of estimated disallowance under the head administrative expenses and commission expenses, the disallowance stands reduced in similar line as in assessment year 2008-09. 19. In the result, appeal of the assessee for assessment year 2009-10 is partly allowed and that of the revenue for the assessment year 2009-10 is dismissed. Order dictated and pronounced in the open court on 10/10/2022. Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 10/10/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : By order Sr.Pvt.secretary ITAT, Cuttack 1. The Assessee: M/s. Serajuddin & Co.P.ltd, 7 th floor ‘C’ Wing, Fortune Tower, Chandrasekharpur, Bhubaneswar 2. The Revenue: ACIT, Circle -1(2), Aayakar Bhavan, Rajaswa Vihar, Bhubaneswar 3. The CIT(A)-1, Bhubaneswar 4. Pr.CIT-1, Bhubaneswar 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//